TransUnion: Energy Price Declines and Growing Subprime Population May Be Impacting Some Credit Markets

TransUnion’s (NYSE: TRU) Q4 2015 Industry Insights Report found that consumer credit markets continued to perform well to close 2015, but energy price declines and a growing subprime borrower pool began to show a mild impact in some regions of the country.

As more consumers—and more non-prime consumers—are gaining auto loan and credit card access, delinquency levels for these credit products have only risen slightly and remain at relatively low levels. Both mortgages and personal loans experienced yearly drops in their delinquency levels, with mortgages dropping nearly 30% in the last year.

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“Overall, the consumer credit markets are performing well. It is a positive sign that delinquency levels have remained relatively low despite more borrowers receiving credit. We have seen a continued rise in the proportion of non-prime borrowers in both the auto loan and credit card industries, and that is a likely driver for the uptick in delinquency among recently originated cohorts in those sectors. We also believe lower energy prices and the resulting job losses in energy-dependent markets have played some role in delinquency rates. Even so, that impact appears at this point to be localized, and mild in terms of national effect.”

Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit

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TransUnion data show that at the conclusion of 2015 there were 1.26 million more subprime borrowers with credit card accounts showing a balance, and 1.21 million additional subprime consumers with auto loan accounts, compared to the end of 2014. The share of subprime accounts compared to other risk tiers also rose slightly in the last year.

States in which energy plays a major role in the economy also showed an impact in the delinquency rates for the first time in the fourth quarter. In 2015, both credit card and auto loan delinquency rates experienced double-digit increases in energy-rich states such as Louisiana, Oklahoma, North Dakota, Texas and West Virginia. Mortgage delinquency rate declines were also not as rapid in these states compared to the U.S. overall.

These results, along with the findings discussed below, were reported in the latest TransUnion Industry Insights Report, a quarterly overview summarizing data, trends and perspectives on the U.S. consumer lending industry. The report is based on anonymized credit data from virtually every credit-active consumer in the United States.

TransUnion Insights: Inside the Auto Loan Market

In Q4 2015, 75.6 million consumers had an auto loan, up 7.8% from 70.1 million in Q4 2014. This is the largest year-over-year auto loan account growth observed by TransUnion. New auto loan and lease originations, viewed one quarter in arrears (to ensure all accounts are reported and included in the data), exceeded 7.5 million for the first time in Q3 2015. Originations increased 8% from 7.0 million in Q3 2014.

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“Loan and lease originations and balance growth are outpacing auto sales, as more consumers choose to finance rather than pay cash for their vehicle. Growth was observed across all risk tiers, a promising sign for the auto industry as we head into 2016.”

Jason Laky, senior vice president and automotive business leader for TransUnion

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Average auto loan debt per borrower grew to $17,999 by year-end 2015, a 3.1% increase from $17,453 in Q4 2014.The auto loan delinquency rate (the rate of borrowers 60 days or more past due on their auto loans) increased 6.4% from 1.16% in Q4 2014 to 1.24% in Q4 2015. As of Q4 2015, the auto delinquency rate reached its highest level since Q4 2010, when auto delinquency hit 1.22%.

“As lenders’ portfolios rebalance to accommodate the growth in non-prime lending over the past few years, we expect a mild uptick in delinquency,” said Laky. “We remain in a low delinquency environment, but have observed pockets of pain in states with large exposure to the energy industry. Lenders should be mindful of different economic impacts and employment levels in various regions of the U.S.”

Trends in the Auto Market

Auto Lending Metric

Q4 2015

Q4 2014

Q4 2013

Q4 2012

Delinquency Rate (60+ DPD) Per Borrower

1.24%

1.16%

1.14%

1.09%

Average Debt Per Borrower

$17,999

$17,453

$16,771

$16,064

Originations*

7.54 million

6.99 Million

6.64 Million

5.99 Million

*Note: Originations are viewed one quarter in arrears, reflecting data for the prior quarter (Q3).

TransUnion Insights: Inside the Credit Card Market

The latest Industry Insights Report found that the credit card delinquency rate (the rate of borrowers 90 days or more delinquent on their general purpose credit cards) increased 6.9% from 1.47% in Q4 2014 to 1.58% in Q4 2015. The credit card delinquency rate reached its highest level since 1.62% in Q4 2012.

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“For the last several years, credit card delinquency has remained at historic lows. Lenders have prudently and purposefully extended credit to non-prime consumers as the economy improved. Subprime lending is contributing to a higher delinquency rate, but the level of growth does not yet signal a cause for concern.”

Paul Siegfried, senior vice president and credit card business leader for TransUnion

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The average credit card debt per borrower remained relatively steady at $5,337, a 0.2% increase from $5,327 in Q4 2014. The number of consumers with access to a credit card reached a historically high level at year-end 2015. More than 5.8 million additional consumers had access to a credit card in Q4 2015 (163.16 million total) compared to Q4 2014 (157.36 million).

Credit card originations, viewed one quarter in arrears (to ensure all accounts are reported and included in the data), increased 6.5% from 14.39 million in Q3 2014 to 15.33 million in Q3 2015. “Originations continue to be a key driver of growth for the credit card industry as balances have remained steady during the year-end holiday shopping season for the past several years,” added Siegfried.

Trends in the Credit Card Market

Credit Card Metric

Q4 2015

Q4 2014

Q4 2013

Q4 2012

Delinquency Rate (90+ DPD) Per Borrower

1.58%

1.47%

1.48%

1.62%

Average Debt Per Borrower

$5,337

$5,327

$5,330

$5,383

Originations*

15.33 Million

14.39 Million

11.97 Million

10.77 Million

*Note: Originations are viewed one quarter in arrears, reflecting data for the prior quarter (Q3).

TransUnion Insights: Inside the Mortgage Market

The mortgage delinquency rate (the rate of borrowers 60 days or more delinquent on their mortgages) declined 28% from 3.29% in Q4 2014 to 2.37% in Q4 2015. This yearly percentage decline doubled the 14% decrease observed between Q4 2013 and Q4 2014. It also marked the largest yearly drop TransUnion has observed for the fourth quarter since the mortgage delinquency rate began to recover in 2010.

While delinquencies improved, mortgage debt per borrower increased 1.4% from $187,139 in Q4 2014 to $189,707 in Q4 2015. This marks the highest debt level per borrower observed since the Great Recession.

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“The rapid decline in the mortgage delinquency rate and the rise in mortgage debt is a positive sign for the residential real estate market. Newer loans continue to perform well, and borrowers are receiving larger loans for their home purchases. While the total number of mortgage accounts dropped by nearly one million last year, we attribute much of this decline from delinquent mortgage borrowers concluding the foreclosure process and no longer being represented in the overall numbers.”

Joe Mellman, vice president and mortgage business leader for TransUnion

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As the number of accounts has declined, TransUnion has observed strong recovery on the origination front. Viewed one quarter in arrears (to ensure all accounts are reported and included in the data), TransUnion found that mortgage originations (by loan count) in Q3 2015 grew more than 21% year-over-year. All risk tiers – super prime to subprime – were within two percentage points of the annual growth rate. “For the first time since the ‘refi’ boom, we believe some origination activity may be attributed to ‘last chance’ refinancing to lock in a low rate before the widely-anticipated Fed Funds Rate increase in December. This sustained high level of activity is an indicator of a broadly recovering housing market,” added Mellman.

Trends in the Mortgage Market

Mortgage Lending Metric

Q4 2015

Q4 2014

Q4 2013

Q4 2012

Delinquency Rate (60+ DPD) per Borrower

2.37%

3.29%

3.84%

5.06%

Average Debt Per Borrower

$189,707

$187,139

$185,496

$183,339

Originations*

1.88 Million

1.55 Million

1.95 Million

2.29 Million

*Note: Originations are viewed one quarter in arrears, reflecting data for the prior quarter (Q3).

TransUnion Insights: Inside the Consumer Lending Market

The latest Industry Insights Report found that the consumer lending delinquency rate (the rate of borrowers 60 days or more delinquent on their personal loans) dropped 2% from 3.95% in Q4 2014 to 3.87% at the end of 2015. Personal loans include both unsecured installment loans and non-auto, non-mortgage secured installment loans, such as recreational vehicles and boats.

Total balances for personal loans reached $270 billion in Q4 2015, a 12.2% increase from $241 billion in Q4 2014. The average personal loan balance per consumer increased 2.4% from $13,327 in Q4 2014 to $13,649 in Q4 2015.

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“Consumers are continuing to take on more and larger secured and unsecured loans as they feel confident in the economy, their employment and their disposable income. At the end of 2015, personal loans were the fastest growing loan product.”

Jason Laky, senior vice president and consumer lending business leader for TransUnion

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In Q4 2015, there were 26.81 million borrowers with a personal loan, a 7.9% increase from 24.85 million in Q4 2014. Originations, viewed one quarter in arrears (to ensure all accounts are reported and included in the data), grew 8.1% from 5.92 million in Q3 2014 to 6.39 million in Q3 2015. 2.30 million of these loans were to subprime borrowers, a 7.3% increase from 2.14 million in Q3 2014.

“Personal loans remain a popular product for non-prime consumers. However, we are observing origination growth across all the risk tiers, including prime and super prime consumers,” added Laky.

Trends in the Consumer Lending Market

Personal Loan Metric

Q4 2015

Q4 2014

Q4 2013

Q4 2012

Delinquency Rate (60+ DPD) Per Borrower

3.87%

3.95%

4.00%

3.94%

Average Debt Per Borrower

$13,649

$13,327

$13,411

$13,753

Originations*

6.40 million

5.92 Million

5.61 Million

5.05 Million

*Note: Originations are viewed one quarter in arrears, reflecting data for the prior quarter (Q3).

Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.